“When it rains, it pours,” the old adage says.
This has certainly been the case for cryptocurrency in 2021. The wave of growing crypto price movements and adoption that began in 2020 carried into the first six months of the year, leading to a fever pitch that lasted from March until May.
Now, it seems that things are a bit calmer in the crypto industry. Still, the world never stops turning, and the rest of 2021 will certainly bring growth, success, failure, and many plot twists. Now that we are halfway through the year, let’s take a moment to pause and reflect. Here are some of the most important trends and events of 2021 so far.
1. The Explosive Popularity of NFTs
Sir Tim Berners-Lee successfully sold an NFT representing the internet’s original source code at Sotheby’s for $5.4 million, a price that some analysts have said is a “bargain.”
It is possible that Sir Berners-Lee may have fetched a bit more for the token (entitled ‘This Changed Everything’) if the auction had been held earlier this year: throughout March and into April, a number of non-fungible tokens sold for millions upon millions. Mark Winkleman, also known as ‘Beeple’, sold one of his works for $69 million.
However, as the weeks went by, it became clear that non-fungible token markets were overheated. As cryptocurrency markets crashed in May, NFT prices fell even further. ON June 15th, the seven-day average NFT transaction volume had fallen to just $8.7 million. Compared to the market’s peak of $170 million in early May, the figure represented a drop of nearly 95 per cent.
The decline in transaction volume has caused some analysts to proclaim the ‘end’ of the NFT market. However, others believe that the end of the NFT ‘bubble’ means that real innovation can begin: Les Borsai, Chief Strategy Officer of Waves and a renowned NFT collector, pointed out last week that the tokens have a growing number of use cases.
“For me, the core NFT developments are happening at a deeper level, not unlike altcoins that launched in 2014 on the back of the Ethereum launch. An NFT, unlike a piece of art that hangs on my wall, can be so many things,” he told Finance Magnates.
For example, “It can be a financial instrument that pays out like an annuity; it can be something I borrow and lend money on instantly. It can be used for yield farming based on Rarity. It can be an artefact in augmented reality or an avatar in VR. It can represent my identity the way a CryptoPunk can be a profile pic, which I have.”
2. Bitcoin’s Big Boom and Bust
Six months into the year, and the price of BTC is 13 percent higher than it was on January 1st. However, this growth has been anything but linear. At its peak in April, the price of Bitcoin hit nearly $60,000. By mid-June, the price briefly fell below $30K, essentially erasing all of the progress that it had made so far this year.
What happened? A number of analysts blame the boom and bust cycle on positive and negative news. On its way up to $60K, BTC was riding high on reports of institutional and corporate adoption: Tesla announced that it would be adding Bitcoin to its balance sheet and accepting BTC payments, and Elon Musk was having a rather public love affair with Crypto Twitter.
Unfortunately for some investors, the good times did not last. Tesla stepped back from its embrace of BTC with news that it would no longer accept Bitcoin payments because of environmental concerns. At the same time, a deluge of reports revealed the Chinese government’s crackdown on the cryptocurrency industry.
Many analysts have pointed out that the drops in price which both of these events have caused were exacerbated by extreme leverage in BTC markets.
Scott Melker, also known as ‘The Wolf of All Streets’, explained BTC’s price drop to Finance Magnates in an interview in May: “From $60,000 to $50,000 BTC prices, we saw almost $10 billion in liquidations on exchanges, which at the time, was about three times larger than any previous liquidation,” he said.
“Then, from $40,000 to $30,000, we saw another $10 billion [in liquidations] on that huge move before it bounced back up to around $40,000.” All said, “that represented around 800,000 traders liquidating their entire accounts.”
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“So, that just tells you that this is a nascent market. There are huge players who have the ability to very easily move prices once they start to trigger that leveraged liquidation cascade. That’s what you see in this market. That’s the reason that we have many more dramatic moves when it goes down.”
3. The Rise of Dogecoin
DOGE has always been crypto’s underdog until this year. The cryptocurrency was thrust into the spotlight earlier this year when some of the same r/WallStreetBets traders that caused the GameStop rally turned their attention to it; within days, the traders pumped the price of Dogecoin from $0.007 per token to $0.07 a pop, which is a rise of roughly 1000%.
Around the same time, Elon Musk seemed to be developing a bit of a fascination with Dogecoin, Tweeting about it repeatedly. A number of analysts believe that Musk’s tweets about the coin were crucial to its growing popularity (and price.) Gene Simmons and Snoop Dogg also jumped on the DOGE bandwagon soon after Elon showed his interest.
Soon, DOGE was everywhere. Two iconic American food brands, Snickers and Slim Jim, expressed their support for Dogecoin on ‘DOGE Day’; even Mark Cuban bragged that his basketball club, the Dallas Mavericks, was the largest Dogecoin merchant in the world. Aunts, uncles, cousins and co-workers who had never shown any previous interest in cryptocurrency were buying ‘the people’s crypto’.
Ultimately, this led to a sizeable boom-and-bust cycle. Still, for those that purchased DOGE at the right time, the coin’s price performance this year has been quite positive: Dogecoin is up more than 5000 percent since the beginning of the year. At its peak, DOGE was up more than 15,700 percent since January 1st.
Still, some prominent voices in the crypto space are continuing to warn investors against DOGE. In April, Billionaire crypto advocate and Galaxy Digital Founder Mike Novogratz said that: “[Dogecoin] is a memecoin…it doesn’t really have a purpose.”
“It’s reminiscent of GameStop,” Novogratz continued, referring to the WallStreetBets (WSB) investors that pumped millions into GameStop stock (NYSE:GME) and several other ‘meme stocks’ earlier this year. “I would be very, very worried if one of my friends was investing in Dogecoin at these prices.”
#4: Ethereum’s Progress Toward Eth2.0
Additionally, the price of ETH has risen considerably this year as the Ethereum network moves ever closer to the Eth2.0 upgrade. In its final form, the upgrade is set to make the network much faster, versatile and less expensive.
One of the year’s most important developments on this front was the successful completion of the Berlin hard fork. The upgrade incorporates four Ethereum Improvement Proposals (EIPs) targeted toward lowering fees and adding new transaction types.
Next on the horizon is the London hard fork, which will activate EIP 1559, which will bring substantial changes to Ethereum’s fee structure. Effectively, this will introduce a deflationary mechanism that ‘burns’ a portion of transaction fees. Over time, this mechanism limits the total circulating supply of Ether, making ETH into a ‘hard’ asset.
Ethereum enthusiasts believe that this introduction of scarcity into Ether could send the ETH price through the roof. “Fundamentalists are gearing up for a supply-side shock due to the imminent implementation of EIP-1559, and the media is just starting to pick up the crumbs,” Melker told Finance Magnates in May.
#5: National Adoption of Bitcoin in El Salvador
2021 was the first year in which Bitcoin was adopted by a country. In June, El Salvador’s President, Nayib Bukele, said in a national address that bitcoin will officially become legal tender in the country on September 7th. Some analysts believe that El Salvador could be the first of many developing nations to classify BTC as legal tender: a bill proposed in Paraguay would make it the second country to embrace Bitcoin as legal tender. In the wake of the bill, the American University of Paraguay announced that it will accept bitcoin tuition payments.
Additionally, Tanzanian President Suluhu Hassan told the nation’s financial chiefs to prepare for cryptocurrency: “We have witnessed the emergence of a new journey through the internet,” she declared. “I know that throughout the nation, including Tanzania, they have not accepted or started using these routes. However, my call to the Central Bank is that you should start working on that development.”